EU wants to stop subsidizing Chinese electric cars and is considering the introduction of tariffs

The President of the European Commission, Ursula von der Leyen, has announced that the Commission will examine the possibility of eliminating state subsidies for cheap Chinese electric cars that “distort” the European Union market.

This announcement came during her annual State of the Union address to the European Parliament. She explained that fair competition should be ensured, as the European electric vehicle industry is not subsidized. She also mentioned that an investigation will be initiated against the subsidies for low-cost electric cars coming from China to the EU.

“Their prices are artificially low due to massive state subsidies. This distorts our market. As we do not accept this distortion from inside the EU, we cannot accept it from outside either. Global markets are now flooded with cheaper electric cars. And their prices are kept artificially low by huge state subsidies. The Commission is launching an investigation into subsidies for electric vehicles coming from China. Europe is open to competition. Not for a race to the bottom,” she emphasized.

The investigation could become one of the most significant trade cases initiated, as the EU seeks to prevent a repetition of what happened in its solar industry in the early 2010s when photovoltaic manufacturers faced bankruptcy due to cheap Chinese imports.

“Too often, our companies are excluded from foreign markets or fall victim to predatory practices. Too often, they are underestimated by competitors benefiting from massive state subsidies,” she added.

The investigation begins despite concerns of potential retaliation from China, indicating a growing worry about the ability of European manufacturers to compete with China’s industry.

The announcement by the President of the European Commission, Ursula von der Leyen, regarding the potential examination of ending state subsidies for cheap Chinese electric cars and the possible imposition of tariffs has triggered reactions in the markets and the automotive industry.

Chinese electric vehicle manufacturers, such as BYD, XPeng, and Li Auto, saw declines in their stock prices following the announcement, as fears of potential measures to restrict subsidies and tariffs may affect their exports to Europe. These companies have been expanding their presence in Europe, offering competitive electric vehicle models that could pose a challenge to European automakers like Stellantis and Volkswagen.

The European Union has set ambitious goals for reducing emissions, including a ban on internal combustion engine cars by 2035. It has also recently revised its rules on state aid to address massive subsidies provided by the United States and China, particularly in green technologies. Europe is particularly concerned about China’s economic practices and has called on Beijing to open its market to balance bilateral trade relations.

The investigation into Chinese electric vehicles represents a victory for the French government, which has been raising concerns about the influx of Chinese vehicles undermining European ones. France’s Ministry of the Economy is already working on adjusting its own state subsidies for electric vehicle purchases, with a focus on limiting subsidies to vehicles equipped with low-carbon footprint batteries.

President von der Leyen will also have to decide soon whether to proceed with plans to introduce tariffs from next year on electric vehicles transported between the EU and the United Kingdom, a move that some officials and the industry argue could harm European automakers and strengthen competition from China.

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